Sydney CBD Office Market Report

30.03.2018Research/Intelligence

2017 saw just 40,884sqm of new and fully refurbished office space completed in the CBD. Over the same period, 175,516sqm was withdrawn from the market. It is expected that the supply of office space will remain constrained until late-2020.

Tenant demand was very strong over 2014-2015 but weak over 2016-2017, with each of the latter 2 years tallying less than half the long-ter, annual average. Tenant enquiry levels fell in each of the first 3 quarters of 2017 but rebounded over Q4.

The already low CBD vacancy rate fell further over the 2nd half of 2017, to 4.6%. It has fallen in 7 of the last 8 periods and is at the 4th lowest mark on record. Effective rents continue to grow strongly across all investment grades with solid increases in face rents and continued contraction of incentives. However, the pace of rental growth has slowed.

We expect the next supply cycle to peak over 2021-2022, however the total new supply added will be substantially less than for the 2015-2016 period.

Consequently, vacancy rates are likely to remain below trend for an extended period of time, irrespective of demand.